ACCC gives provisional approval for Optus HFC to NBN migration agreement

Monday, 28 May, 2012

The Australian Competition and Consumer Commission (ACCC) has issued a draft determination proposing authorisation of the agreement between NBN Co and SingTel Optus for the migration of Optus’s HFC subscribers to the National Broadband Network (NBN) and the subsequent decommissioning of parts of Optus’s HFC network.

NBN Co will make progressive payments to Optus based on the number of customers that Optus migrates to the NBN. These payments are expected to total a post-tax net present value of approximately $800 million.

Under the Competition and Consumer Act 2010, the ACCC may authorise arrangements where it is satisfied that public benefits outweigh any public detriment likely to result from the arrangements.

“A wide range of arguments were put to the ACCC by Optus and NBN Co, but, in essence, our decision was based on weighing, carefully, two clear public benefits arising from the HFC agreement against a potentially large but less clear detriment,” said ACCC Chairman Rod Sims.

In the ACCC’s view, the main public benefits are avoiding the operating costs of a duplicated service and the delivery of a lower cost HFC subscriber migration to the NBN.

Balanced against this, the ACCC believes the HFC agreement removes a potentially significant fixed line competitor to the NBN in Brisbane, Sydney and Melbourne. Competitive pressure from the Optus HFC network may have resulted in positive outcomes, notably prompting NBN Co to improve its performance.

However, this competition was considered impacted by a “number of unique factors [that] have reduced the detriments” of the agreement, namely a limited future HFC network footprint with high-speed broadband services that would be at the lower end of the range of services that the NBN will support, resulting in a gradual loss of HFC customers to the NBN and making operation of the HFC network uneconomical, once a critical mass of customers was lost.

“The ACCC also considers that some of the usually expected gains from competition in the performance of the NBN are, on closer examination, reduced,” said Sims.

“For example, the regulatory approach, which will ultimately apply to the NBN, is intended to provide strong incentives for NBN Co to promote utilisation of the NBN and to be responsive to customer needs concerning speeds and other aspects of service quality.”

The ACCC is required to prepare a draft determination in relation to an application for authorisation before it makes a final determination. The purpose of the draft determination is to test the ACCC’s views with the applicant and interested parties.

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